Convergence between direct and indirect real estate investments: Empirical evidence from the Nigerian real estate market

Benjamin Gbolahan Ekemode, Abel Olaleye

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)


Purpose: This paper aimed to examine the return/risk performance of direct and indirect real estate (listed property stock) in the Nigerian real estate market and analyzed the short-term integration between the two classes of real estate assets. It also established whether investors could achieve diversification benefits by combining both assets in a portfolio. Design/methodology/approach: The data utilized comprised annual returns on direct real estate calculated from the rental and capital values of 226 direct commercial properties obtained from property valuers in Lagos, Nigeria, for a period of January 1999-December 2014. The appraisal-based direct real estate returns were de-smoothed using the Geltner (1993) procedure. The annual returns of indirect real estate were also computed from the transactions of listed property stock on the Nigerian Stock Exchange for the study period. The return-risk profiles were also broken down into short- and medium-term sub-periods, comprising 3, 5, 8 and 12 years to reflect the level of volatility in the market, whereas the nature of the short-term relationship between the two real estate assets classes was tested using Granger causality technique. Findings: The results revealed that listed property stock performed better than unsmoothed direct real estate on a risk-adjusted performance basis. The performance profile, however, varies over the different sub-periods considered. Short-term integration analysis showed that there was no bidirectional relationship between direct and listed property stock, implying diversification and risk reduction possibilities in combining both assets with other asset classes in a domestic asset portfolio. Overall, the results confirm the findings of previous study that listed property stocks return is segmented from the direct real estate market upon which its pricing and trading in the stock market are based. Practical implications: The conclusion of the study suggests that investors could achieve improved performance by investing in listed property stocks than direct real estate in the Nigerian real estate market. The inclusion of both assets in a domestic mixed-asset portfolio could also be expected to offer diversification and risk reduction benefits. Originality/value: This is one of the few studies that examine the short-run integration between direct real estate and listed property stocks with a focus on an emerging African market.

Original languageEnglish
Pages (from-to)212-230
Number of pages19
JournalJournal of Financial Management of Property and Construction
Issue number3
Publication statusPublished - 2016
Externally publishedYes


  • Cointegration
  • Direct real estate
  • Diversification
  • Indirect/securitized real estate
  • Smoothing

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Finance
  • Economics and Econometrics


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